Gold has hit a new all-time high while global markets remain under pressure following further hints that US President Donald Trump could attempt to oust Federal Reserve boss Jerome Powell.
The South African rand remained steady at R18.66 to the US dollar on Tuesday morning, having gained 1.1% over the long weekend. The local currency has clawed back significantly from its April 9 record low of R19.93 that was reached just before Trump's tariff pause announcement. The US currency is currently trading at 15-month lows against major global currencies.
"The rand is trading firmer this morning on the back of the weaker dollar and soaring gold price. EM (emerging market) currencies are all showing some decent gains despite the uncertainty in markets," said Andre Cilliers, Currency Strategist at TreasuryONE.
"Brent crude is trading flat at $66.64, with traders sitting on the sidelines amidst all the uncertainty."
International markets have started the week in the red, although Asian stocks saw a mixed performance on Tuesday morning.
“Asian markets are experiencing pressure this morning, following a significant selloff in the US on Monday, which saw the S&P 500 drop 2.4%,” said Bianca Botes, Director at Citadel Global.
“Concerns over trade conflicts and potential changes in the Federal Reserve’s leadership contributed to the decline.”
Gold hit a new record high of $3,457 (R64,508) on Tuesday, as investors continued to seek a safe haven.
Linh Tran, Market Analyst at XS.com, says bullion prices continue to be driven by three core factors: growing expectations that the Federal Reserve will soon shift to monetary easing, escalating trade tensions between the US and China, and persistent geopolitical risks, such as the ongoing Russia and Ukraine conflict.
Investors are now dealing with the added worry that Trump will try to remove the country’s top banker, raising question marks around the central bank’s independence, AFP reports.
Following Powell’s warning last week that Trump’s severe tariffs would likely fuel inflation, Trump hit back, stating his termination “cannot come fast enough,” and adding: "I'm not happy with him. I let him know it and if I want him out, he'll be out of there real fast, believe me".
Trump took further aim at Powell on Monday, urging him to make pre-emptive interest rate cuts, and calling him a “major loser” and “Mr Too Late”.
Should Trump attempt to fire the Fed boss, it could cause a huge loss of confidence in the US economy, analysts warn.
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"Were Powell to be fired, the initial reaction would be a huge injection of volatility into financial markets, and the most dramatic rush to the exit from US assets that it is possible to imagine," Pepperstone strategist Michael Brown told AFP.
"Any sign of the longstanding, independent nature of the Fed coming under threat would see investors across the globe selling every single US-based asset that they have, and also poses the genuinely scary prospect of upending the entire way in which the global financial system operates," Brown added.
Key Figures at 4:30am SA time
- Tokyo - Nikkei 225: DOWN 0.1 percent at 34,255.71 (break)
- Shanghai - Composite: UP 0.3 percent at 3,301.74
- Hong Kong - Hang Seng Index: DOWN 0.3 percent at 21,330.37
- Euro/dollar: DOWN at $1.1500 from $1.1510 on Monday
- Pound/dollar: UP $1.3384 at $1.3377
- Dollar/yen: DOWN at 140.76 yen from 140.89 yen
- Euro/pound: DOWN at 85.91 pence from 86.03 pence
- West Texas Intermediate: UP 1.0 percent at $63.73 per barrel
- Brent North Sea Crude: UP 0.7 percent at $66.75 per barrel
- New York - Dow: DOWN 2.5 percent at 38,170.41 (close)
- London - FTSE 100: Closed for a holiday